My question may sound antithetic, but let me ask you this regardless of whether my idea may fit Nintendo or not. Nintendoâs basic strategy for revitalizing the financial performance has long been âthe expansion of the gaming population.â I said my question may sound antithetic because I am going to ask âIs it appropriate to pursue this goal?â In my view, the index of âthe number of users per family,â which is something Nintendo management has prioritized as one of the important indices, does not necessarily have a strong relationship with a single year or multiple year profits. The expansion of the gaming population is, so to speak, something Nintendo should carry on eternally. Therefore, for the purpose of the revitalization from now, is it necessary to establish more specific goals to which progress can be confirmed? I assume that the digital distribution of the packaged software is something developed probably based on the companyâs analytical view or decision that the time has come to begin this business. Having said that, however, should the message conveyed from Nintendo be âthis is something we would like to implementâ by constructing win-win relationships between retailers and Nintendo rather than the concept of consumersâ choice? I would like to hear your thoughts on this.

7

Iwata:

Right now, we are in a tough situation in terms of the financial performance, so it is probably fair for you to wonder whether what Nintendo has exercised was off point. On the other hand, we wonder what would have happened to the video game industry if we had not made efforts to expand the gaming population, and whether you would be able to see a bright future for a kind of entertainment in which the number of new consumers was not increasing. From these viewpoints, my belief has not changed at all. Without making efforts to increase the number of new consumers and make video games accepted positively by society, we cannot expect a brighter future than now, so we will continue to make these efforts.

However, if you ask us whether everything Nintendo has done was right or whether we would use the same tactics if the companyâs policy or strategy remains the same, there are issues to overcome. For example, the Wii was able to reach a large number of new consumers who had never played games before by bringing hands-on experiences with its âWii Sportsâ and âWii Fit.â However, we could not adequately create the situation that such new consumers played games frequently or for long, consistent periods. As a result, we could not sustain a good level of profit. Moreover, regrettably, what we prioritized in order to reach out to the new audience was a bit too far from what we prioritized for those who play games as their hobby. Consequently, we presume some people felt that the Wii was not a game system for them or they were not willing to play with the Wii even though some compelling games had been released. In comparison with what we did with the Nintendo DS and the Wii, with respect to your view this time that the introduction of the software that contributes to expanding the user base for the Nintendo 3DS platform is delayed, we are doing along the lines of what we intended to do to a certain extent. Once consumers have a notion that âthis system is not for us,â we have learned that it is extremely difficult to change their perceptions later. Therefore, in promoting the Nintendo 3DS and the Wii U, we have announced that we would like âwidthâ and âdepthâ to coexist. With the Nintendo DS and the Wii, the approach of âwidthâ was well accepted by many people; however, what we did in terms of âdepthâ was not satisfactory for some consumers. This time, we would like consumers to be satisfied in both aspects. In order to do so, we started to work on the âdepthâ aspect first, and the current and existing software you can see for the Nintendo 3DS is based on that idea. In the future, the approach will evolve. By exploring the development both from width and depth standpoints, it is our intention to satisfy a wider audience with one gaming platform. Our approach for the Wii U is basically the same. By doing so continuously, we are expecting that the number of game users per household will increase and as the gaming population increases, we believe we can create a sustainable video game market. We would like to materialize what I have said for both the Nintendo 3DS and the Wii U in the future.

With respect to the digital distribution of the packaged software, you mentioned that we should announce our proposal by saying, âThis is what we would like to do,â rather than by saying, âWe would like our consumers to choose.â Certainly, this approach would be one way to follow; however, the reason why we said we would like our consumers to make a choice is because, from a consumerâs perspective, there are pros and cons for both the physical, packaged software and its digitally downloaded counterpart.

As I explained with a slide indicating points with ⓞ and Ã, what matters to consumers differs based on their game play styles. If Nintendo enforced the mechanism under the idea that âthis is the only option you have, because this is the approach we would like to take,â and if this option was contrary to my tastes as a consumer, I would most likely feel that the company was being arrogant. As we want to take a sincere attitude to our consumers, we must take an approach of providing our consumers themselves with options. My assumption is that, from a long-term perspective, our consumers will gradually accept the convenience of the digital download version and the proportion of the digital download sales will be larger. When our consumers decide to choose the digital one and when the digital portion of the business grows, our proposal will also make a win-win situation with retailers. We will know how retailers think about our specific proposal some time later when we begin talks with them. Meanwhile, we have already exchanged thoughts with various business partners in a broad sense. Based on their feedback, we made a proposal under the assumption that this new transaction system would work well. As I have now explained the system, we are going to start official communications soon. Therefore, at this moment, we cannot tell you specifically about what kinds of reactions retailers have. I am hopeful that there will be a number of retailers around the world who will collaborate with us very proactively because, from a logical standpoint, there are advantages for retailers as well. We proposed this digital business because we can create a win-win situation and, therefore, we believe it will be accepted. Today, although I didnât elaborate on the details, we believe there are many software publishers who will welcome the proposed new system if the transaction mechanisms which accommodate their needs are established together. Once such mechanisms are established, their products will have more exposure and more opportunities will be created for consumers to purchase at retail outlets. In addition to that, if this new plan can create a situation in which those who have not purchased games in a digital format before purchase digital games, we believe a good number of software publishers will be able to expand their business opportunities. Our intention is to present our plan to various people with the idea that âthe consumer is able to make a choice.â

8

My question is on the win-win relationship with retailers. I think I heard you say something like that the wholesale prices of the packaged software and its digital download version would be identical and that the retailers could decide the retail prices for both versions. As there is no inventory risk in the digital distribution of software, I think the retail price of digital software could end up almost the same as the wholesale price because there is nothing other than its price that differentiates between the digital software and the packaged software. In that case, I expect retailers will not be able to earn any profits in selling the digital software. What do you think of this point?

8

Iwata:

It is a misunderstanding that the wholesale price of digital software will be identical to that of packaged software. As I mentioned earlier, it is a fair business transaction that, without taking any inventory risk, retailers donât get the margin equivalent to the one they can get when they take inventory risk in selling packaged software. Therefore, the retail price of digital software isnât necessarily converged with the wholesale price. There are several types of retailers; a retailer that offers products at comparatively high prices but provides good services and is in a convenient location, or a retailer that only focuses on offering products at lower prices than others do. I expect to see sound competition among retailers that take advantage of their strengths as they have done so far. In that sense, I donât think our proposal on selling digital software will instantly pull a trigger that leads to cutting retailersâ profits to the limit. I also donât think it should be this way in the future.